Working poor in Finland

In 2000, 5.2% of working-age Finnish people belonged to ‘working poor’ households, an increase from 3.9% in 1997. The group of working poor is very heterogeneous, affecting more women than men. People in the 35 to 54 year old age group are most affected, and the risk of poverty is greatest when a person has only a basic education. One-parent families experience the highest risk, according to household type.

In Finland, in the late 1990s, income disparities began to increase and changes in income distribution raised the relative poverty level. Although poverty is more common among unemployed people, it can also be an issue for people who are working. The ‘working poor’ are a unique group: in spite of the fact that at least one household member works, the household’s income remains below the poverty line. The poverty line is defined as 60% of the equivalent median income. In addition, a person who belongs to the working poor group can be unemployed, as long as at least one person from the same household is employed.

The Labour Institute for Economic Research has conducted a study, ‘The dynamics of employment and economic exclusion’, focusing on the working poor in Finland and on the poverty dynamics of this group. The study is based on a register-based dataset from Statistics Finland, comprising longitudinal information on 350,000 individuals between 1993 and 2000.

The working poor

In 2000, 5.2% of working-age Finnish people belonged to ‘working poor’ households, an increase from 3.9% in 1997. The group of working poor is very heterogeneous, affecting more women than men. By age, the largest subgroup is made up of people aged 35 to 54 years.

Several interrelated factors influence the prospects of the working poor. At an individual level, the risk of working poverty is greatest when the individual is under 24 years old. Education also correlates with the risk of poverty: the risk is greatest when a person has only a basic level of education and smallest when they have a higher level of education.

The poverty risk varies considerably according to household type. The greatest risk is experienced by one-parent families. Couples without children have the lowest probability of working poverty. Among households with children, the probability of being poor increases when there are more than two children. The higher the number of working household members, the lower the risk of working poverty will be. It is also clear that work intensity has an impact on salary and, therefore, on working poverty.

Working poor, by household type (% of each group)

Part-time and/or temporary employment contracts raise the possibility of poverty, compared with full-time and/or long-term employment. The risk of poverty when working is greater among entrepreneurs than among employees.

Exiting from working poverty

The possibility of moving out of working poverty is influenced by several factors, both at individual and household level. They can be divided into three categories:

  1. changes in the household’s labour market position, e.g. wage level, the number of working household members, moving from part-time to full-time employment;
  2. supplementary income, e.g. social assistance, property income, income transfers, tax benefits;
  3. household changes, e.g. the type of household and the number of household members.

Concerning other factors, the greatest influence is exerted by the individual’s age and level of education. A young age and a higher level of education increase significantly the chance of getting out of poverty. On average, men have a greater probability of exiting poverty than women do. Although having a spouse has a positive impact when trying to escape working poverty, the number of children in a household has no statistically significant effect. The results on exiting poverty focus on cases where the type of household has remained unchanged.

Interestingly, part-time employment had both positive and negative effects for people trying to get out of working poverty. Often, the escape from poverty is achieved by securing a full-time job. As expected, a high local unemployment rate and the depth of the poverty both made it more difficult to escape working poverty. Furthermore, the probability of exiting working poverty diminished when the poverty was of a prolonged nature. Employment during previous months made it easier to move out of working poverty.

In terms of policy measures, during the 1990s, labour market training was shown to increase the possibility of exiting working poverty. The positive effect of education seems to be independent of economic trends. Subsidised employment did not, however, have similar positive results.

In 1997, entitlement regulations for unemployment allowance were tightened in Finland. This meant an increase in work intensity, especially in the first year, for those who had fulfilled the previous entitlement conditions, but not the new ones. It is important to note, however, that economic conditions have an impact on work and employment, as do various institutional, social and cultural factors. The high demand for labour in the late 1990s could explain some of the above mentioned results.

Conclusions

In an international comparison, poverty has not been very prevalent in Finland so far (see Foundation report Working poverty in the European Union). However, income disparities have been growing since the 1990s. Among those Finns living below the poverty line, approximately one in three are employed. So far, few Finnish studies have considered the working poor. Yet, from a policymaking perspective, it is important that the working poor group is not ignored in research. The effects of policy measures aimed at eliminating working poverty should be investigated thoroughly. It is also important that political initiatives take household-related factors into consideration.

Reference

Kauhanen, M., Työssäkäynnin ja taloudellisen syrjäytymisen dynamiikka (The dynamics of employment and economic exclusion - in Finnish only), Studies in Labour Policy 276, Ministry of Labour, 2005.

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